Blog Post

Steve Jobs, saved by the rising stock

Thursday will mark a red-letter day for Apple: For the first time its stock will rise above $100 a share, a tenfold increase in a little more than three years. Think about that: If Google had risen that much since its IPO, it would be trading at $850.

Apple’s stock was trading at $102 in aftermarket trading Wednesday, a 7% surge above its formal closing price of $95.35. Unless something big happens overnight, Apple’s stock is likely to see a similar jump Thursday.

And why not? The company posted a net profit of 87 cents a share. That’s 85% above the 47 cents a share in the year-ago quarter and 36% above the consensus forecasts among analysts. This is a textbook case in a blowout earnings report and reason to wonder why analysts bother with Apple estimates.

Unfortunately, the success will also probably keep CEO Steve Jobs from facing deeper scrutiny for the company’s backdating scandal, an omission of clarity that could cause harm far beyond Cupertino.

The future looks just as bright. Sales for Mac products were up 36% year over year, substantially faster growth than in iPods and iTunes, which were up 25%. Apple is successfully broadening away from dependence on music products, a trend likely to strengthen later this quarter with the introduction of the iPhone.

The report caps a week that will probably be remembered as a milestone in the apotheosis of Steve Jobs. Looking past Apple’s earnings and its
stock price, it’s getting harder and harder to pretend that Jobs didn’t violate securities law in the options-backdating scandal facing the company.

The SEC filed civil charges this week against Apple’s former CFO Fred Anderson, who has settled with regulators, and its former general counsel Nancy Heinen. Then Anderson, who might just as soon put the episode behind him, took the extraordinary step of issuing
a public statement saying
Jobs misled him on board decisions on options and that Jobs knew about the risk of a backdating charge.

Mark McQueen, CEO of Wellington Financial, a firm that manages $400 million, summed it up well on his blog

“When was the last time in recent memory that a corporate scandal led to very serious charges being brought against the CFO
and General Counsel, but not against the CEO? … It’s curious that a former Apple CFO pointing fingers isn’t sufficient for the
Securities Exchange Commission to proceed against Steve Jobs.”

Anderson’s version of events actually makes sense, given Jobs’ reputation as a control freak and his instrumental role in using options to lure in talent after he returned to Apple. But Jobs is unlikely to face any action from the SEC, even though Anderson’s statement is begging for a deeper probe.

Why? Ask any attorney who has left the SEC’s enforcement division in the past few years. They’ll tell you the department is well-intentioned and talented, but criminally understaffed and toothless. They took on Anderson and Heinen to set a high-profile example in the options scandal, which involves more than 100 companies.

But they didn’t take on Jobs. And the Justice Department, which may be looking into the Apple as well, is unlikely to either. He has become, more than any American businessman, an icon of success. It’s like throwing the golden goose under the train. There would be a massive revolt among Apple shareholders.

It was a similar case with Mark Hurd, who accomplished the near impossible by turning around H-P. When it became clear he was involved in the pretexting scandal, ethicists suggested he should step down. Shareholders said he shouldn’t, and they won.

I like Steve Jobs. As a consumer, I’m grateful for his achievements at both Pixar and Apple. But I’m troubled by the very real possibility he participated in options fraud and is being treated as above the law. Otherwise, regulators are sending a disturbing message to tech
executives: As long as your stock is soaring higher, you can dabble in whatever scandals. If we ever get back in a bubble – when all stocks are surging, not just the deserving ones like Apple – that thinking will cause a lot of accounting messes.

An open, clean investigation would prevent this: If Jobs is innocent, the debate is over. If not, he makes amends while shareholder support
will keep him as CEO. Either way, this image of Steve Jobs as above the law, a toxic one for the stock market, would go away.

19 Responses to “Steve Jobs, saved by the rising stock”

  1. Crabapple

    Get real people! The man is paid $1.00 for a years work. He came back to rescue the company he co-founded after the greedy share holders and over ambitious Vice president booted him out thinking they had all the answers on how to enrich themselves.

    Years later when all was falling about their ears, the share holders realised their mistake and humbly begged him back (he had a successful Business Of his own then. Next computing).

    The share holders wanted to reward him better than the measly $1.00 salary but due to this that and the other, the decision that had been made in his abscence was not ratified until later by all the signatories. As CEO, he then signs what ever the board approves which is share options to deserving employees. Of course the details into the investigation are far more detailed than this sketchy outline, but the most important issue in all this is that no shareholder lost as a result of this action. No share holder has raised any complaint or threatened to sue independently. All the share holders & customers of Apple Inc i.e Applelites are extremely happy and satisfied with their CEO, board & employees.

    In this light how can you find find anything to complain about unless you happen to be in a rival camp.

  2. Ol' Yeller

    We have yet to see what the ex-GC will say – her lawyer said “we have a great defense.” Hmmm…

    Jobs is a very savvy business guy, not a starry-eyed product wonk. Coincidence that Pixar AND Apple both have back-dating scandals?

    Jobs is highly regarded as a top-notch jerk, and I can attest to that after having been in a meeting with him for 90 minutes. Just being a jerk doesn’t mean he’s guilty, but my instinct says he is.

  3. Interesting to see that Apple’s high stock price is apparently saving Steve Jobs’ job (personally, I don’t believe this theory) but over at Research in Motion, a stock options problem has been taking the veneer off the company’s previously-squeaky clean CEOs – Jim Balsillie and Mike Lazaridis even though RIM shares continue to fly high.

  4. The laws are not unclear, it is very obvious that not accounting for backdated options are illegal. It is true that it is up to the discretion of the SEC to go forward or not, but Jobs did break the law (you know it, I know it, the Wall Street Journal knows it and the SEC knows it.)

    Backdated options have nothing to do with rewarding performance. It actually is exactly opposite of what stock options are designed to do, because when they are backdated, the profit is already realized.

    As for the ex-CFO and ex-GC, of course they had direction from the board and from Jobs. Staff don’t do these things without the leadership knowing it.

    Jobs is responsible for this, but I don’t think the SEC will go after him for a number of reasons. Now, if Al Gore decides to run for president, I think the situation will change.

  5. Steve W

    Why is the blogsphere ignoring the real coverup? Apple’s current success isn’t due to falling component prices. The release of Microsoft Vista is to blame. “A rising tide lifts all boats”.

  6. The thing I dislike about this whole “scandal”, as the media is calling it, is that really no harm was done. The company is doing great, no stockholders lost money.

    Of course they did break the law so they should get in trouble, but a lot of people are completely overreacting and making it seem like another Enron.

  7. Vitaboy

    By the way, here’s a question for Kevin.

    If Fred Anderson knew granting those backdated options were so wrong, why in the end did he accept a big chunk of backdated stock?

    “Oh, Steve, there’s some serious accounting implications about doing this, but you know what, let’s forget about all that because I really like the look of those stock certificates.”

    Or maybe:

    “Well, I tried to warn Steve but in the end, the board bullied me into accepting stock that was worth $3.5 million more than it should have been. It was against my ethics, but I was afraid of losing my job (or something). They even forced me to sign the paper with a date I knew was incorrect!”

    Yeah, right Kevin – Fred’s story is more plausible.

  8. Vitaboy

    No doubt we will still here people latching onto the meme that Apple is going to dump the Mac despite the fact that Mac sales are still growing at a sizzling pace.

    And I have a feeling that those crying out for “justice for Jobs” really don’t care about that at all. Wiping out 20% of shareholder value overnight is less important than the pleasure of seeing Jobs being taken down a notch or two.

    And it’s funny that Kevin is so readily willing to take Fred Anderson’s word while an independent internal investigation and an external investigation by the SES was somehow not enough to clear Jobs of wrongdoing. Fred can saying anything, but the board came up with paperwork proof that satisfied the SEC – all Fred has is his word.

    Seems like the only reason questions linger is that people like Kevin keep inventing them out of a personal need to see Jobs punished.

  9. “Sales for Mac products were up 36% year over year, substantially faster growth than in iPods and iTunes, which were up 25%.”

    Hey what happened to that “We’re not a computer company anymore. We’re a consumer electronics company.”?

  10. This is not the 1st time that Apple stock has risen over $100. Kevin Kelleher doesn’t remember that AAPL split 2:1 about 2 years ago. So this achievement today is more like the first time Apple’s stock has risen over $200!!

  11. Jim Stead

    The rising stock and the options awards are not unrelated. The options were used to pay the people who have made Apple a success (no good people, no rising stock). This options brouhaha is another example of a “crime” with zero victims.


  12. william

    The whole issue is about harm to shareholders. I know it can be painful to overlook the potential wrongdoing, but what course of action will benefit shareholders, going after the CEO, or letting him skate?

    I believe in football, a team has the option to decline a penalty if that would be in its best interest. As a shareholder, I vote for declining the penalty.

  13. Apple missed an opportunity when the board committee issued its report earlier this year. Rather than absolve Jobs of all blame, it should have admitted he’d made a mistake that was common during the excesses of the boom and agree to have Apple employees, including Jobs, reimburse investors for any losses. Now all Apple’s shareholders can do is hope that regulators prove as forgiving as the board.

  14. Well Kevin, you must have seen documents or hard evidence I have yet to see published about Jobs. Back dating isn’t illegal, accounting for it wrongly is. Let’s see, Fred’s a finance/accounting guy, Jobs isn’t. Doesn’t even matter if Fred had a discussion with Jobs which he probably did.
    So, why are some of you sooooo hoping Jobs will get charged or taken down?